1. Chapter 4 Transactions That Affect Assets, Liabilities, and Owner’s Capital

2. Objectives: Prepare a chart of accounts Explain the purpose of double-entry accounting Identify the normal balance of accounts

3. Objectives: cont… Use T-Accounts to illustrate the rules of debit and credit for asset accounts, liability accounts, and the owner’s capital account and to express the accounting equation. Calculate the account balances after recording business transactions. Define the accounting terms introduced in this chapter.

4. Why it’s important? You need to analyze transactions into debit and credit parts. Transactions That Affect Assets, Liabilities, and Owner’s Capital:

5. PANDA RESTAURANT GROUP  Andrew and Peggy Cherng opened their first Panda Inn in Pasadena, California.  Use recipes from Andrew’s father, Master Chef Ming-Tsai Cherng.  Now has more than 700 stores in 36 states, Puerto Rico, and Japan.  Their mission is to reach a goal of 10,000 Panda Express restaurants.

6. Panda Express outlets

7. Prediction What does the chapter title tell you? What have you learned about this in the earlier chapters? Transactions That Affect Assets, Liabilities, and Owner’s Capital

8. What Do You Think? When Panda Restaurant Group opens a new store, how do you think its assets and liabilities are affected? ASSETS: LIABILITIES:

9. KEY TERMS Chart of accountsA list of all accounts used by a business Ledger A book where all the accounts are grouped together. Double-entry accountingA system used to analyze and record a transaction. DebitAn entry on the left side of an account CreditAn entry on the right side of an account T-AccountAn efficient tool for using double-entry accounting Normal balanceThe usual balance of an account

10. Chapter 4 Section 1 Accounts and the Double- Entry Accounting System

11. ROADRUNNER DELIVERY SERVICE 155 Gateway Blvd. Sacramento, CA 94230 CHART OF ACCOUNTS ASSETSLIABILITIES OWNER’S EQUITY REVENUE EXPENSES 101 Cash in Bank 105 Accounts Receivable---City News 110 Accounts Receivable---Green Company 115 Computer Equipment 120 Office Equipment 125 Delivery Equipment 201 Accounts Payable---Beacon Advertising 205 Accounts Payable---North Shore Auto 301 Maria Sanchez, Capital 302 Maria Sanchez, Withdrawals 303 Income Summary 401 Delivery Revenue 501 Advertising Expense 505 Maintenance Expense 510 Rent Expense 515 Utilities Expense

12. Section 1 Accounts and the Double-Entry Accounting System ASSETS=LIABILITIES + OWNER’S EQUITY Account Name Left Side Debit Side Right Side Credit Side Account Name Left Side Debit Side Right Side Credit Side

13. Section 1 Rules for Asset Accounts ASSETS =LIABILITIES + OWNER’S EQUITY ASSETS Debit + Normal Credit - An asset account is increased on the debit side An asset account is decreased on the credit side The normal balance for an asset account is the increase, or the debit side.

14. Rules for Liability and Owner’s Capital Accounts ASSETS =LIABILITIES + OWNER’S EQUITY LIABILITIES Debit - Credit + Normal OWNER’S EQUITY Debit - Credit + Normal Liability and owner’s capital accounts are increased on the credit side. Liability and owner’s capital accounts are decreased on the debit side The normal balance for liability and owner’s capital accounts is the increase, or the credit side.

15. Cash in the Bank Debit 5,000 Credit Accounts Payable---National Office Supp. DebitCredit 2,500 ASSETS =LIABILITIES + OWNER’S EQUITY 5,850 = 2,500 + J. L. Baker, Capital DebitCredit 3,350 Office Equipment Debit 850 Credit 3,350 1)400 2)1,000 Bal 4,000 Bal 1,900 Bal 1,250 Bal 3,350 2)1,000 1. Roadrunner bought a calculator on account from National Office Supply for $400. 2. Roadrunner issued a check for $1,000 in partial payment of the amount owed to National Office Supply. 1. Find the Balance for each account. 2. Check the Accuracy using the ACCOUNTING EQUATION Total Assets = Total Liabilities + Owner’s Equity

16. Applying the Rules of Debit & Credit Asset AccountsLiability Accounts Owner’s Capital Account Normal Balance Increase Side Decrease Side

17. Problem 4-1 Applying the Rules of Debit & Credit Account Title Account Classification Increase Side Decrease Side Normal Balance Cash in BankAssetDebitCreditDebit Accounts Receivable Asset Debit Credit Debit Office Equipment AssetDebitCreditDebit Accounts PayableLiabilityCreditDebitCredit R. Lewis, CapitalOwner’s Equity CreditDebitCredit